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One 6% yield I’d buy and one I’d sell in 2017

Regardless of the juicy yields on offer at Debenhams (LSE: DEB), I reckon the intensifying pressure on the UK high street should prompt investors to give the stock the cold shoulder.

Debenhams has already taken a pasting this week following Next’s disappointing trading update, the department store’s share value slumping to its cheapest since March 2009. And I reckon the company’s Christmas trading release (scheduled for January 12) could prompt further weakness in the weeks and months ahead.

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The retailer announced in October that like-for-like sales edged just 0.7% higher during the 12 months to August 2016, Debenhams noting “a strong performance over peak followed by a tougher second half trading environment.” The business is battling against rising competition on the high street and in cyberspace, not to mention the crushing effect of massive discounting.

These pressures are expected to see Debenhams keep the dividend locked at 3.42p per share for fiscal 2017. This projection yields a stunning 6.5%.

And at face value this figure seems well covered by predicted earnings, with dividend coverage standing bang on the safety benchmark of two times.

But I reckon the likelihood of rising inflation, not to mention a weakening labour market, on consumer appetite could see Debenhams extend a predicted 12% earnings decline for the current fiscal year. And this could put payouts under severe pressure.

Ring up a fortune

I have no such fears over the payout potential of Vodafone (LSE: VOD), however, and reckon the company’s rampant success across the globe should keep on delivering plump rewards.

The telecoms giant has a rich history of raising the dividend, and Vodafone is expected to keep the run going by paying out 12.5p per share in the year to March 2017, up from 11.45p last year and yielding a smashing 6%.

But against a backcloth of huge investment, Vodafone is expected to row back a little in fiscal 2018, and a 12.3p per share dividend is currently forecast. Still, this projection yields an exceptional 5.9%. And I reckon Vodafone’s effervescent growth outlook should get payments chugging higher again beyond the next period.

The business continues to reap the rewards of improving conditions in Europe, not to mention stunning demand growth in emerging regions across Africa, Asia and the Middle East, and Vodafone saw organic service revenues leap 2.3% during April-September.

And the vast sums Vodafone has ploughed into its global network via its Project Spring organic investment programme has laid the base for revenues to continue surging in the years ahead. Meanwhile, the company’s recent foray into the quad-services market offers excellent cross-selling opportunities looking ahead, not to mention sterling sales potential in its own right,

The number crunchers have pencilled-in earnings growth of 15% and 24% at Vodafone for 2017 and 2018 alone. And I believe the firm’s shareholders can look forward to stunning bottom-line growth beyond these periods, a promising omen for future dividends.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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